What is inflation?

Inflation is a term used in the field of economics, which is related to the sustained and widespread rise in prices of goods and services within the capitalist market, because the amount of money in circulation exceeds the value of the products that money can buy, bringing the main consequence of the devaluation of the local currency.

There are mainly two causes that can trigger inflation in the economy. Firstly may occur by the excessive and fast to demand significantly exceeding the number of goods offered, making its producers charge more for them.Second, inflation can pop by rising costs of labor or raw materials of a good or service, which means that producers look at the obligation to increase the final price of the property for a profit with the sale.

The Consumer Price Index, better known as IPC is a tool used by economists to measure the level of inflation in the economy of a country. Calculate the percentage change in the price of a good or service purchased in two different time periods. If it is true, is considered the official inflation rate, however only limited to measuring the operator family.

Inflation can be graded, taking as criteria the CPI. Low inflation is the most subtle, is experiencing a slow and predictable prices, the CPI does not vary more than one digit. In runaway inflation begin to see a rapid devaluation of the currency and the CPI goes to two digits vary. Finally, there is hyperinflation, which is one of the most critical junctures may experience local economy overflows uncontrollably inflation and currency depreciates completely after all the economy is destroyed.

The main measure to stop inflation is setting a high interest rate in order to control the money supply, however this can bring stagnation in economic growth and promote unemployment.

Central banks, responsible for monetary policy of the country, are responsible for preventing or stopping inflation. They have control of the money in circulation, if there is much, increases the demand for goods which would exceed the country’s productive capacity and thus leads to a shortage of goods and services, resulting in higher prices. Otherwise be deflation, having little money circulating, no purchasing power and market with much to offer would be what would bring down prices.

Consequently, the ideal of a country’s economy is to balance the money flowing and the goods and services offered.